almost soviet
In a beautiful piece of historical scholarship twenty years ago, the economic historian Naomi Lamoreaux (go, team) argued that historians have overestimated the market dominance of giant industrial conglomerates in the age of the robber barons. Big mergers, Lamoreaux argued, frequently produced unwieldy and inefficient companies that were ripe targets for new competition. Conglomerates formed around old factories and the last generation of technology; new competitors could start fresh, keep costs low, and offer strong challenges on price and quality. Monopolies had their time, but then were generally challenged in the marketplace and pushed aside.The analogy certainly isn't exact, but all kinds of interesting journalism this holiday season suggests that Wal-Mart is in trouble. Target is competing with brand differentiation and clever marketing; Sears and K-Mart have merged, and will apparently compete on price and quality. The point is that other stores can and will compete, and an apparently stagnant management climate at Wal-Mart has helped to make that possible. The Slate story I've linked to above includes an enjoyable quote about Wal-Mart from James Cramer: "The stores are dowdy. The aisles are ugly. There's nothing exciting or different or even colorful at Wal-Mart. It feels almost Soviet in its selection and presentation." That kind of description doesn't exactly make Wal-Mart sound like a scary and unstoppable economic force.
In short -- and I don't pretend that this is the complete picture -- it seems to me that at least some of the political handwringing in the last few years over the evil, downtown-killing, soul-deadening, employee-abusing Wal-Mart monster has granted that corporation a lot more market power and cultural power than it ever really had. Every corporation has weak spots; no player in the marketplace is untouchable. Economic power tends to come in a package with economic vulnerability.
There are some interesting implications, and it'll be fun to see what develops over the next five years. Will Target, Sears, and K-Mart compete with Wal-Mart for quality employees? Can Wal-Mart be pushed by market forces to improve employee benefits?
It seems to me that the emerging narrative here serves as an argument for marketplace solutions to marketplace problems. Again, I doubt that this is the whole picture, but it does seem to me that it's more effective to compete against corporate giants than it is to legislate against them.
posted by Chris Bray @ 11:38 AM
3 Comments:
Jenna Jameson has a book out, I always check the book section for anything interesting that might have gotten through their computerized censoring system; Wal-Mart will not sell it, not even with a smiley face wrapped around it.
Guess I'll have to take a trip to the Mall.
I can't agree with much of your argument. First, the WalMart problem seems to be more an illusion than reality. They didn't do as well as last year partly because they did so very well last year. And, they made a couple of mistakes by straying from their own model. Others didn't beat them by coming up with a new game, they just played WalMart's game better this one time. And WalMart still beat them in absolute terms. Second, Sears, K-Mart and Target aren't "new competition" that was able to "start fresh". They're just the other remaining dinosaurs. The Sears and K-Mart combination is almost the definition of a "big merger". In fact, WalMart itself is probably the best example of her Lamoreaux's thesis in that arena. They came up with a new business model and rode it to the extinction of established giants like Wards, Pennys, and (until Frankenstein got involved) KMart. But they didn't kill those others off until they became giants themselves.
Her thesis works pretty well with production industries if a new technology is developed (Japanese steel is a classic case). But I don't see it working out in the department store world or in things like extraction industries. Sometimes a small player can come up with a new innovation that lets them enjoy initial success in those areas, but then one of the giants copies their technology or technique and they're crushed by sheer size.
Mojo
Mojo,
There's a lot of sense in what you say here, but I think you've taken a stronger position against my argument than the argument really warrants.
First, my argument is a lot more heavily conditioned than I think you've noticed: "the analogy certainly isn't exact," "I don't pretend that this is the complete picture."
Second, I think the fundamental premise ("Economic power tends to come in a package with economic vulnerability") withstands the criticisms you've offered, which is ultimately made in terms ("I don't see it working out in the department store world") that are less strong than the rest of your argument.
And finally, I think that KMart is so badly wounded that its movement in the marketplace can almost be regarded as a new entry. Sears is in better shape, but my sense is that both will still have to be built up almost as new companies. That's not to say I don't think you're at least largely right when you argue that "The Sears and K-Mart combination is almost the definition of a 'big merger.'" But both are also companies that were headed to extinction, and seem to have been given a chance at new life by the missteps of a dominant competitor.
In any case, we'll know who's right in thirty or forty years. But I'm putting my money on the argument that Wal-Mart won't hold its place in the economy.
(And that goes double for Microsoft.)
Post a Comment
Subscribe to Post Comments [Atom]
<< Home